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Brian BingleCity Administrator

P.O. Box 395Nixa, MO 65714

bbingle@nixa.com (417) 725-3785

Date: December 21, 2015TO: City CouncilFROM: Brian Bingle, C.A. SUBJECT: 2016 Budget Letter

City staff respectfully submits a balanced 2016 budget for Council’s approval. The 2016 budget projects $34,209,931 in operating revenues with an estimated $29,633,482 in operating expenses. In all Departmental instances, except Electric, the 2016 budget continues either to sustain or lower Council directed expenditure to revenue ratios. As discussed with Council during 2016 budget hearings, Electric’s ratio is constricting due to it incurring unexpected Springfield CU (SPP) pass-thru transmission charges and other extenuating circumstances. The Department needs to perform a 2016 rate study at its earliest convenience. For more information about the Electric Department, please see the Electric section of this budget letter.

City of Nixa 2016 budget includes a 12% increase in employee medical insurance coverage and a 3% merit, with its allocation to occur at the time of each employee’s anniversary date. A total of $8,711,800 is scheduled for city expenditure on city-wide capital improvement projects (CIP). As prepared, the 2016 budget guarantees more than adequate restrictive funds for each Department that is capable of sustaining Departmental operations during disaster circumstances that negatively impact revenue collections. In addition, as a whole, the city has a healthy unrestricted reserve balance of $7,456,227, with the understanding that these funds are for the exclusive use of each Department’s proportional amount. For a breakdown of each Department’s unrestricted reserves, please refer to the City of Nixa Combined 2016 Budget Summary.

General Fund: (Admin/Development, Police, Parks, Building Inspection and Stormwater)General Fund (GF) projects revenues of $7,670,031. Approximately 33% of these funds occur from the City’s 1-cent sales tax. It is estimated that a total of $2,650,000 will come from the city’s sales tax in 2016. This amount is projected at 7.7% more than the 2015 estimated end-of-year (EOY) amount. The 2016 budget proposes a total fund transfer of $3,022,500: $2,559,000 to Police; $393,000 to Parks; $52,500 to Building Inspection; and, $18,000 to Stormwater. A total of $3,450,260 remains from the total projected revenues to cover all Administrative and Development Department(s) expenses. This operation and maintenance (O&M) amount along with the inner-Departmental fund transfers constitutes 83.5% expenditure to revenue ratio. EOY 2016 balance anticipates $5,445,310 in reserve. Restrictive reserves would account for $3,210,000 of this amount, with $2,235,310 in its unrestricted balance. Administration has one CIP expenditure in 2016 of $22,000 to replace a vehicle.

Police:A fund transfer of $2,559,000 along with operating and non-operating revenues of $304,100 provide the Department with a total of $2,863,100. This amount will cover $2,469,960 in O&M expenses, $93,500 in debt service and $302,500 for 2016 CIPs. GF’s transfer constitutes a 10% increase over 2015 EOY estimates. Council’s direction to add (3) additional full-time officers to the Department is the primary reason for this increase. Council’s direction to add these personnel is in direct conformance with the Department’s 2015 Man Power Study that

actually identified the Department’s needs at 7 full-time officers. Council has asked staff to reevaluate the budget’s potential ability to afford these additional officers at the end of the 2016 second quarter. Following the 2015 retirement of the Department’s vehicle lease purchase, it is the Department’s intent to utilize another 2016 vehicle lease purchase arrangement for the replacement of six (6) vehicles . The total lease amounts to $234,000, with three expected annual payments of $93,500. The Department is also requesting the expenditure of $68,500 to purchase and install twelve in-car cameras, with six of these in-car cameras to be included in the above lease purchase.

Parks:GF will transfer a total of $393,000 to the Parks Department in 2016. These funds along with the Department’s ability to generate an additional $826,800 from its recreational programs and fitness membership will provide the Department with $1,219,800 in total revenues. GF’s transfer is approximately 11% less than the estimated 2015 EOY transfer. The Department has also implemented fee increases for 2016 to assist GF with lessening annual fund transfers.

The Parks Department proposes the expenditure of $126,800 for 2016 CIPs. A total of $93,300 of these expenditures are covered from the Department’s reserve accounts. All other 2016 line items remain relatively consistent with previous year’s amounts, with the exception that 2016 will be the first full-year of recreational programming since the School District discontinued their recreational programming.

Building Inspection:BI is projecting $179,000 in total 2016 revenues, with total projected expenditures of $230,900. GF will transfer a total of $52,500 in 2016 to balance the Department’s budget. Due to the lack of available lots and the sluggish residential market, the Department has not yet experienced a full residential construction recovery. However, the city is starting to experience more activity than it has in the recent past that could assist the Department in covering all of its annual O&M expenses without any further need for fund transference. As noted in staff’s budget discussions with Council, if development activity continues to increase, as expected, the Department’s current man-power is unable to handle the additional workload. Staff will keep Council apprised throughout 2016 of this concern.

Streets:The city’s Street Department is projecting total revenues of $3,252,004, where $1,325,000 will come from the Department’s ½-cent sales tax. It is anticipated that the sales tax would generate 7.7% more revenues over estimated 2015 EOY estimated amounts. The Department’s ½-cent sales tax constitutes 63% of its total revenues, excluding Surface Transportation Program (STP) funds. Total expenditures for the Department amounts to $5,561,135. Of this amount, $3,907,500 are to cover both the Tracker/Main and US160/SH14 intersection improvements. Both of these projects are slated for bid in November 2015. The maintenance line item is budgeted to handle additional city-wide sidewalk projects. The traffic marking line item is increasing to address a significant city-wide street marking deterioration. Other large CIP expenditures in 2016 include backhoe replacement ($50,000), crack sealer ($45,000) and two (2) zero turn mower replacements ($20,000).

EOY (2016) balance estimates equal $1,475,869. A total of $818,000 of the EOY balance is restricted reserves, which leaves $657,869 in unrestricted reserves. There are several potential street projects that the city will monitor; both are developer driven: Truman and Northview extensions. Both of these projects are eligible for STP funding. The City is currently receiving approximately $330,000 a year in STP funds.

Electric:The city’s Electric Department estimates $18,152,500 in revenues, with O&M expenses at $17,400,061. This expenditure to revenue ratio is 95.85%. As noted in this memos introduction section, this is unacceptable. Several reasons are causing this ratio’s constriction. When the city adopted the most recent rate study, it was recognized that this ratio would start tightening because we were attempting to lessen the rate’s impact on constituents and we chose not to reimburse reserves. What the rate analysis did not anticipate was that SPP would start charging Springfield for transmission, which Springfield passes-thru to Nixa. As a result of this later effect, the city is seeing monthly charges in the amount of $40,000. It is imperative that the city initiate an electric rate study in 2016.

Due to the city’s negotiation of its transmission system sale, the city must wait to initiate a rate study, until more definitive outcomes of the sale is realized. At the current time, the sale of the transmission system will have the potential of generating a significant amount of revenue that the city will use to retire the Department’s entire debt service, while still having a significant amount of monies remaining. The city, following the retirement of the Department’s debt, could realize annual savings of approximately $773,300 (principal & interest). These additional revenues will need to be taken under consideration in off-setting new SPP transmission expenses and lessening the need for any additional reserves for future CIP investments.

The Electric Department proposes $2,413,134 in 2016 CIPs. All of the revenues for CIP expenditures are coming from the Department’s unrestricted reserve account. For a full listing of the Department’s 2016 CIPs, please refer to the City of Nixa 2016 Capital Improvement Program. EOY ending balances are estimated at $5,066,005. Of this amount $4,565,000 are restricted, leaving the Department with $501,005. This amount is incapable of affording the Department sufficient revenues for any significant future system upgrades or growth.

Water:The city’s Water Department is estimating total revenues of $2,359,000, where $195,000 is a reimbursement from Southwest Power Administration (SPA). The Department’s expenses are projected at $1,488,846. One line item of interest is the Department’s continued efforts of addressing water line leaks, following chlorination of our water system. The Department budgeted $20,000 in 2015 and it has spent $55,000. The Department is budgeting $40,000 for 2016 to continue with these system repair efforts.

The Department is proposing $620,833 for its 2016 CIPs. The two more significant system improvements consist of the Inman Road/Hwy M water line loop, $255,000, and $175,000 for the construction of SPA’s water line extension to SPA’s newly proposed control center, at Maynard and SH14. As noted SPA will reimburse the city for all incurred expenses.

Projected EOY balance amounts to $2,768,221. Of this amount $2,101,221 is available in unrestricted reserves. Please note that staff recommended postponing the construction of the Norton Road water tower in 2016. Its primary need is development driven, which we are not experiencing; therefore, by postponing its construction, the city will have the ability of building up its reserves to off-set the need for any more debt service.

Wastewater:The city’s Wastewater (WW) Department projects total 2016 revenues at $3,186,500. A total of $125,000 of that amount is the Department’s estimated 2016 impact fee collections. The Department’s annual O&M is estimated at $1,929,939. WW realizes one of the lowest expenditures to revenue ratios at 63.04%; however, the Department’s annual debt retirement of $723,281 equals 23% of the Department’s total revenues. Two of the three revenue bonds totaling $595,487 annually are not scheduled for retirement until 2023, with a third to retire in 2025. The current plant capacity, however, is sufficient to handle a substantial amount of city growth without the need for expansion. With exception, our western and southwestern areas have limited development capabilities as a result

of inadequate collection and transmission to the WW plant. At the current time, this inadequacy is not impeding the city’s ability to grow.

WW is budgeting $1,102,833 for 2016 CIPs. Three of the more significant expenditures consist of the city’s continued SCADA ($250,000) efforts, channel cover installation ($120,000), and South Street gravity flow capacity improvements ($350,000). This later project is in addition to the city’s other efforts to help alleviate downtown flooding. A full listing of the Department’s 2016 CIPs can be found in the 2016 City of Nixa Capital Improvement Program.

WW’s EOY is estimated at $2,580,447. Restricted reserves amount to $652,000 of this amount, with the remaining unrestricted reserves of $1,928,447.

2016 Bond Requirement(s):GF, as of 12-31-15, has $4,241,732 outstanding debt. Of this amount, $1,540,100 does not retire until 2021. The larger amount ($2,680,000) for City Hall and Police expansion is not scheduled for retirement until 2026. GF pays out a total of $705,160 annually for debt service. This amount constitutes 9% of GF’s total revenue prior to any fund transference.

The enterprises have a total of $10,993,500 in debt outstanding. WW has two outstanding revenue bonds totaling ($3,453,500) retiring in 2023, with a third lease obligation of $1,055,000 that does not retire until 2025. Total annual Departmental debt retirement amounts to $723,281. Electric has one outstanding debt in the amount of $5,115,000 that was used for the construction of the Nixa/Springfield transmission line. Staff will keep Council up to speed on our transmission sale negotiations. This outstanding Electric debt is not scheduled for retirement until 2023. Water also has but one outstanding debt in the amount of $1,370,000. The Department is spending $231,000 annually, with its debt retirement scheduled for 2023.

Attachment(s):(1) City of Nixa Combined 2016 Budget Summary(2) 2016 City of Nixa Capital Improvement Program